How I use PP and VP in my margin acccount?

[Odysseusa]

According to the link below; Interactive Brokers, OptionsHouse, eOption offer the lowest margin rates.

http://www.onlinebrokerrev.com/commissi ... -rates.php


Let's say you put $25,000 in a margin account and in combination of the margin loan, you can devise PP and VP in a margin account like below.




Permanent Portfolio Portion

$10,000 in SHY
$10,000 in TLT
$10,000 in GLD
$10,000 in VTI

with extra of the leftover margin buying power, you can invest / trade in undervalued dividend stocks like below...




Variable Portfolio Portion

$5,000 in MSFT Microsoft
$5,000 in INTC Intel
$5,000 in JPM Chase
$5,000 in CAT Caterpiller
etc.


You can use the link below to screen for dividend stocks of dividend yield of over 2%, payout ratio under 80%, PEG of under 1, etc.

http://www.finviz.com/screener.ashx?v=1 ... -marketcap




I also want to mention that please see investing / trading like running your own business and take it seriously.

[craigr]

Margin investing is a huge no-no.

[Odysseusa]

Margin investing is a huge no-no.

Gun/car is also dangerous but if we know how to handle it, it offers a lots of benefits.

[melveyr]

Thoughts:

Why would you borrow money at high rates, and have investments in lower yielding bonds? It's basically the worst arbitrage ever, a guaranteed money loser.

[craigr]

Margin investing is a huge no-no.

Gun/car is also dangerous but if we know how to handle it, it offers a lots of benefits.

Here's the question I always have when I read about margin investing:

Why would a broker loan you money to invest for relatively paltry interest rates when they could invest it themselves and rake in all that easy money?

What do they know that the margin investor doesn't?

I'm not trying to be snarky. But the people I know that lost the most money the fastest have always done it with margin investing.

[Ad Orientem]

Margin investing is a huge no-no.

Can I have an Amen please?  Margin investing is a form of gambling that could potentially leave you deep in the financial hurt locker.  It is antithetical to the PP.  Even in a VP I can't endorse it.  But hey, it's a free country...

[moda0306]

My problems with margin investing are the following:

1) The rates you pay are relatively high

2) The rates are only tax-deductible to the degree that you have investment income that isn't capital gains or dividends.... basically, only interest.  That's only if you are itemizing your deductions.

3) The volatility amplifies your emotions that would normally be attached to wealth that you can't loose more than 100% of.

4) They often attach themselves to the invested securities, so if you do have a dip, even in a PP type set of assets, you don't get to buy more or hold strong through it... no... you are forced to sell and pay your "margin call."  This happens at what is probably a great buying opportunity... but they don't care.

Basically, the entire structure of "margin interest" is working against you.  It's high, difficultly deducted interest that grabs your investments as soon as they move in an inconvenient direction... a direction that even if you were able to emotionally cope with and buy at a bargain, your margin call would be forcing you to do the opposite.

If I was to use leverage, I'd much prefer using a solid slice of tax-deductible home equity debt and increasing one's contributions to traditional and roth IRA/401(k)/HSA accounts to eliminate the taxation on those investments.

That way, those investments are free of taxes, margin calls, bankruptcy and lawsuits, and the interest is much more easily deductible, and probably a much lower rate.

Hope this helps.

[dualstow]

Not trying to pile on, but whether or not margin investing is a bad idea (I think it is), it certainly seems out of place in a forum about the Permanent Portfolio. yes, even in the Variable section.

Now if you'll excuse me, I'm going to log into my favorite road safety forum and ask how to pass the straight-line test in case I get caught driving while loaded.  ???
Just teasing, but seriously, I'm a bit surprised that you're into something as conservative as the pp AND margin trading.

[AdamA]

Margin investing is a huge no-no.

Gun/car is also dangerous but if we know how to handle it, it offers a lots of benefits.

Have you ever experienced a margin call?

[Odysseusa]

Have you ever experienced a margin call?

Sure, sometimes, but if you know how to handle it, it should be fine.

[MediumTex]

Have you ever experienced a margin call?

Sure, sometimes, but if you know how to handle it, it should be fine.

Do you just not answer the phone?

[craigr]

A buddy of mine got a margin call during the tech bust. By the time he had a chance to do anything the broker had liquidated assets for him to cover it at their discretion. He had no say in the matter on what would be sold and for what price. The fine print in the contract allows brokers to do these things to cover the loan. He got badly burned and took huge losses. He probably also owed taxes on the sale of the assets used to cover the margin loan. I know of other people with similar tales of woe.

But ultimately you need to do what you want with your money. But since this is a board dedicated to the Permanent Portfolio I am just stating the case that leverage for investing is not advised. It's a clear violation of Rule #7:

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=1

[craigr]

On margin risks and the contract terms usually used at brokers supplying margin loans:

https://www.siebertnet.com/html/CSLegal ... aimer.aspx

You can lose more funds than you deposit in the margin account. A decline in the value of securities you purchased on margin may require you to provide additional funds or margin-eligible securities to NFS to avoid the forced sale of any securities or assets in your account(s).

NFS and your broker dealer can force the sale of securities or other assets in your account(s). If the equity in your account falls below the maintenance margin requirements or NFS' higher "house" requirements, NFS or your broker dealer can sell the securities or other assets in any of your account(s) held at NFS through your broker dealer to cover the margin deficiency. NFS may also take action to sell securities or other assets in your account(s) held with NFS and certain NFS affiliates. You also will be responsible for any short fall in the account after such a sale, possibly including NFS' and/or your broker dealer's costs related to collecting the short fall.

NFS and your broker dealer can sell your securities or other assets without contacting you. Some investors mistakenly believe that a firm must contact them for a margin call to be valid, and that the firm cannot liquidate securities or other assets in their account(s) to meet the call unless the firm has contacted them first. This is not the case. Most firms will attempt to notify their customers of margin calls, but they are not required to do so. In addition, even if a firm has contacted a customer and provided a specific date by which the customer can meet a margin call, the firm can still take necessary steps to protect its financial interests prior to that date, including immediately selling the securities without notice to the customer.

You are not entitled to choose which securities or other assets in your account(s) are liquidated or sold to meet a margin call. Because the securities and any other assets in your account(s) are collateral for the margin loan, NFS or your broker dealer has the right to decide which assets to sell in order to protect its interests.

NFS can increase its "house" maintenance margin requirements at any time and is not required to provide you advance notice. These changes in firm policy often take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause NFS or your broker dealer to liquidate or sell securities or any other assets in your account(s).

You are not entitled to an extension of time on a margin call. While an extension of time to meet margin requirements may be available to customers under certain conditions, a customer does not have a right to the extension.

Short selling is a margin account transaction and entails the same risks as described above. NFS or your broker dealer can effect a buy-in of securities to cover a short position in your account without contacting you and may use all or any portion of the assets in your account to make such a purchase. If the assets in your account are not sufficient to cover the cost of such a purchase, you will be responsible for any shortfall, which may include NFS and/or your broker dealer's costs in collecting the shortfall.

Emphasis added. Margin is wicked stuff. I'd stay far away from it.

[Odysseusa]

"Be fearful when people are greedy.
Be greedy when people are fearful."


Warren Buffett

[MediumTex]

"Be fearful when people are greedy.
Be greedy when people are fearful."


Warren Buffett

How long have you been pursuing your margined PP/VP?

How has it worked so far?

[AdamA]

"Be fearful when people are greedy.
Be greedy when people are fearful."


Warren Buffett

There is no way Warren Buffet would ever recommend that the average investor use leverage in this way.

It only takes one margin call to ruin you financially for a very long time.  Please don't make this decision hastily. 

[Odysseusa]

How long have you been pursuing your margined PP/VP?

How has it worked so far?

At least one person is open minded about this specific matter.

[MediumTex]

How long have you been pursuing your margined PP/VP?

How has it worked so far?

At least one person is open minded about this specific matter.

I just want to understand what you have actually been doing, how long you have been doing it and how it has worked so far.

I've never met anyone who has had good long term experiences with margin investing, but you might be the first.

If, OTOH, you haven't been doing it very long it's sort of like the chainsaw juggler who suggests that it's safe because nothing bad has ever happened to him, but then he mentions that he's only been doing it for a week.

BTW, here is the world record holder in chainsaw juggling:

http://www.youtube.com/watch?v=ti3MkTt5qv4

[Odysseusa]

I just want to share with you what I am doing and it's up to you to make up your mind. We are adults in here.


Don't think MARGIN like a 6-letter word.

[MediumTex]

I just want to share with you what I am doing and it's up to you to make up your mind. We are adults in here.

Don't think MARGIN like a 6-letter word.

I understand.

Tell us what you are doing, how long you've been doing it and how well it works.

I'm interested.

[AdamA]

At least one person is open minded about this specific matter.

I don't mean to sound close minded. I just know from personal experience how dangerous leveraged investments can be. 

I would love to hear what you're doing and how it works.  I think there is some skepticism here just because no one wants to see you lose your shirt.  Don't take it as antagonism.

[stone]

I Googled and found, http://en.wikipedia.org/wiki/Odysseus:
"Odysseus is renowned for his guile and resourcefulness, and is hence known by the epithet Odysseus the Cunning (m?tis, or "cunning intelligence"). "

Didn't Warren Buffet also say that if you are smart then you don't need leverage and if you are not smart then you certainly do not need leverage.

[Odysseusa]

Happy holidays to PPers, VPers, MGers, etc.  ;D

[clacy]

I've looked at ways to incorporate leverage into the HBPP, but I always come back to the fact that I sought out the PP because I just do not like high volatility and large drawdowns.  So adding leverage is sort of counter-intuitive to the HBPP, IMO.

It would be great to leverage your returns and keep volatility in a similar profile to what the by the book version provides, but I'm doubtful that is possible.

[MachineGhost]

I want to point out that you don't seem to have the right perspective on what the Variable Portfolio is about.  I say this because it seems your money management skills sucks.  You've given equal weight to both the PP and the VP, i.e. 50%/50% split instead of a more prudent 90%/10% nonleveraged split for speculating.  Such a rule isn't just plucked out of thin air; it is a battle-tested historical heuristic to limit one's risk of ruin.  And to add insult to injury, you've also leveraged it.  The VP risk simply overwhelms the conservative PP. 

Furthermore, the best way to invest in equity long-term is not by focusing on dividends, nor is it focusing on payout ratios based on manipulated earnings, nor is it using the PEG ratio which is nonsensical tautological logic from Peter Lynch of the 1970's.  Dividend payouts are no longer a sign of value; dividends have been phased out starting in the mid 80's in favor of stock buybacks, which are also diluted by options issuance compensation which isn't currently required to be accounted for as an expense (Steve Jobs was the biggest scam artist of all time using this).  While those blue chip stocks may be undervalued based on other simplistic ratios, it will not stop them from losing, say a historical 50%, in the next bear market.  Value is not a hedge.  All stocks more or less lose at least the same amount in adverse conditions, so your only advantage is to extract the most reward for that risk.

Since IB offers up to 6:1 portfolio margining, such a 50% drawdown will wipe you out several times over...

Like the other poster said, I'm not being antagonistic, just pointing out the risks which you can do very little about other than choosing not to play.  The illusion of control over risk in the markets is exactly just that.  Are you sure you're not unconsciously acting out for attention like a teenager to justify your bad behavior? 

MG

According to the link below; Interactive Brokers, OptionsHouse, eOption offer the lowest margin rates.

http://www.onlinebrokerrev.com/commissi ... -rates.php


Let's say you put $25,000 in a margin account and in combination of the margin loan, you can devise PP and VP in a margin account like below.




Permanent Portfolio Portion

$10,000 in SHY
$10,000 in TLT
$10,000 in GLD
$10,000 in VTI

with extra of the leftover margin buying power, you can invest / trade in undervalued dividend stocks like below...




Variable Portfolio Portion

$5,000 in MSFT Microsoft
$5,000 in INTC Intel
$5,000 in JPM Chase
$5,000 in CAT Caterpiller
etc.


You can use the link below to screen for dividend stocks of dividend yield of over 2%, payout ratio under 80%, PEG of under 1, etc.

http://www.finviz.com/screener.ashx?v=1 ... -marketcap




I also want to mention that please see investing / trading like running your own business and take it seriously.